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expatriate's picture
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I'm not an expert in the oil business, but something just doesn't make sense to me here. The government says U.S. crude prices are expected to average $56.62 a barrel this summer -- up from $41.12 for the same period last year. That's roughly a 37% increase.

What I'm not hearing anyone say is why.

For years if gas jumped a dime a gallon the talking heads were all over it -- blaming it on tension with Iraq, cuts in OPEC production, threats from Iran, whatever. Here we are with gas averaging $2.31 a gallon, and I'm not seeing a lot of explanation. There's no alarm about the economic effects, either. In fact, the media seems to be going in the opposite direction by saying it's not affecting drivers and saying that gas prices aren't so bad when corrected for inflation.

I'll admit that there's statements about increased demand and lack of refining capacity. But this summer's gasoline consumption is only expected to be 1.8 percent greater than last year. Refining capacity will exceed last year's by 0.5 percent. There's talk about Asia's increasing demands affecting things, but 37 percent in a year?

It used to be if gas went up a dime the nation was in an uproar, politicians were fired up, and the media was full of talk about how much damage it would do to the economy. None of that appears to be happening. I'll admit I've been out of the country for a few months, but am I missing something?

Don Fischer's picture
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If George want's you to know, he'll tell you. Funny, at one time I was one of his supporter's, now I can't wait to see him gone!

expatriate's picture
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It's awfully tempting to go after theory that an oil man is looking out for his buddies. But you can bet if that was the case the New York Times would be all over it. To borrow a line that's been used before, where's the outrage? The media's hands off attitude has me particularly puzzled -- especially when I see an Associated Press story gloss it over as not that bad in terms of inflation-adjusted dollars -- that's right off the American Petroleum Institute's website.

Since when does the AP take the oil industry at face value? Aside from electricity, oil powers almost all of our transportation modes. Then you can add in the cost of lubricants, plastics, etc. Then think about potential decrease in summer tourism, drop in large car sales, etc. I don't care about inflation-adjusted dollars -- just consider the delta. Increasing energy costs 37% in a single year should send enormous ripples through an energy-dependent economy like ours because it's a tsunami -- not a slowly rising tide. And yet the media is explaining it away like it's no big deal -- a huge change from the way the subject has been covered for the last 30+ years. Seems awfully surreal to me...

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Gas Prices

OK, go back to the days when Oil and Gas prices were dictated by the producer and end-line users, the prices were set by supply and demand! What we have now are Futures Markets that are being set up by Wall Street. Would'nt you love to have an "expert" publish an article on your stock that causes them to shoot up where they have never been? Thats what I see happening with Oil and Gas Futures. You give the Office of the President too much credit if you think he can controll Wall Street. Another factor is that everyone wants cheap gas, get over it, we have had free play with decades of low cost fuels and now we are forced to do something about it. How about building more refineries, the Government has made that nearly impossible with the laws that are on the books today, DEQ, EPA and a hundred other agencies are in place to prevent commerce! These agencies have to shut down the very things that we need to be building right now, just so the can justify their existence.

bitmasher's picture
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Why? Its a combination of things that are pushing it up as I understand it.

1.) Futures speculation. Energy trading is hot, hedge funds have increased the volitily in the market.

2.) Refinery capacity. The U.S. has not had a new refinery since the 70's. If one refinery goes down for even a minor issue, supplies dip. Traders hedge that like in most years their will be a glitch, thus pushing up futures prices now.

3.) But this summer's gasoline consumption is only expected to be 1.8 percent greater than last year. Are you sure about that? Gasoline consumption for vehicles, but oil is the feed stock for many other products. The net rise in consumption across all product lines that a refinery produces is probably much higher than 1.8% since the economy (supposedly) pulling into a growth curve.

4.) Big supplying nations in general (or viewed to be) being politically unstable. Venezula, Russia (the Yukos debacle), the Middle East (the constant worry of an al queda strike in saudia arabia on refinery resources), Iraq continuing to be offline. All of these factors feed trader speculation to push up future prices.

Prices will go back down, nearly every major oil company is hedging that it will according to their SEC filings.

I think the U.S. needs to get serious about a few things:

1.) Improving fleet efficieny now. I like SUVs, you like SUVs, we all like SUVs. But lets be honest, they don't have the regulation that other vehicles do, and it really would help us all out if our fleet was more efficient.

2.) Opening ANWR. Domestic production, whatever can be found, should be tapped.

3.) Get serious about fusion research. Screw this "mars mission" stuff, its practical benefits are minimal. Serious federal R&D into fusion (the reaction that powers the sun) would have all the benefits of mars research, plus the eventual payoff of cheap, ubquitious energy. The U.S. used to be the leader in fusion research, other nations such as Franch, Britian, and Japan have been making leaps and bounds progress in the last decade though.....

4.) Enhanced research into better coal scrubbers. North america is blessed with coal like saudia arbia is blessed with oil. Lets find better, more cost effective, and safe ways to use the resources we have here.

5.) Enhanced research and tax write off support for off grid technology. The model of large power companies supplying all the energy to a town needs to be agumented with individuals using solar technology to produce and store energy on sight (home/work). A future where most consumers produce their electricty at their home and store it either by battery or mechanical means is a smart future. The grid would be used for backup. Why is this smart? Because a huge portion of the energy produced is lost through electrical transmission. If the energy is produced onsite you cut out the transmission losses.

6.) Better/safer Fission reactors. The Japanesse are leaps and bounds ahead of us now with using and developing safe, economical traditional nuclear reactors. China is making fission an important part of their future energy needs and laying the ground work for it now. New style fission reactors are simply not capable of the reactor run aways made famous by three-mile island and chernobyl. Plus the added bonus that the western U.S. has some of the richest uranimum reserves known in the world.

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bitmasher, I agree with most of your points.

The reason we aren't doing 1 and 5 of your last points is that it would reduce our dependency on large gov't subsidised industries. If we didn't have big industry, who would elect our polititians?

Don't get me started on SUV's! They have their place, it's just not as a commuter vehicle in the city! People who drive something that gets less than 25 miles to the gallon, back and forth to the office, can't complain about gas prices in my book.

One problem(of many) with ANWR, is that it would all go to the world market, which by all accounts would have little affect on crude prices. If we tried to keep it all ourselves, the large oil producing nations would say "If you keep all yours, your not getting any of ours". Then what do we do?

The biggest thing we can do to reduce our dependency on foreign sources of oil is to reduce our dependency on oil. Period.

As for the coal thing, I'm all for coal if we can extract it without blowing up mountains in the east to get it. I live in a big iron mining area and have seen what extraction can do if left unchecked. And it needs to be "superclean" when burned, not just "cleaner" than what it is now.

expatriate's picture
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I'm all for mining, so long as it doesn't impact the environment. Ha! That's like saying you love winter, just so long as it doesn't get cold.

I come from a mining town, too, and I take it from the sounds of things you're from Virginia or thereabouts. There's no way you can extract coal without impacting the environment. Underground mining has less visible impact, but it's frightfully expensive compared to strip mining, and far more dangerous.

Mining will impact the environment, but the nice thing about coal is that it doesn't lend itself to the huge open-pit operations you commonly see used in hard rock mines. Remediation can be much easier afterward when dealing with coal. The problem many folks have with mines is that they picture operations from the past that tore things up with no remediation whatsoever, and which left eyesores forever.

There's some outstanding coal reserves out West, too -- not necessarily the high quality anthracite the steel industry relies on, but plenty good enough for power production.

I agree with Bitmasher -- fusion should be the answer -- especially when you consider it's arguably the only source of large-scale power with no environmental repercussions. But in the interim we have plenty of alternatives.

As far as SUVs go, I don't think it's my place to pass judgement on what another person "needs." There's too many people who think that if they disagree with something, than by golly something's got to be done about it to keep them from being offended. I for one don't have the financial reserves to dedicate toward a high-mileage vehicle to get back and forth to work but which wouldn't meet my needs for the other aspects of my life.

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expatriate, I'm really enjoying your inferences of my postings. I guess that is part of the problem with debates. People hear what they want to hear. I never said mining was wrong or that it shouldn't be done if you can't do it without any impact. Simply, I said I

Quote:
have seen what extraction can do if left unchecked

. That means just what is stated, nothing more.

I also never said that I would tell someone what they "need". Only that the same people who seem to be complaining are the ones that are driving something that is part of the problem, instead of part of the solution. I feel for the folks in the shipping industry, or those that make their living with larger, inefficient vehicles, like construction contractors. But in the long run, the only way us Americans ever make any change is when we get slapped in the face. Welcome to our face slap.

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I live in an area with several open pit coal mines. I'm impressed with their reclamation efforts. As the pit moves/expands, the spent areas are reclaimed immediately. After a few years you can't even tell that half of the mountain had been removed.

As for the quality of our coal, there is great demand for western coal. Its cleaner burning and gets shipped not only to the east coast but to other countries as well.

Even though we have an abundance of coal, it is not an infinite supply. It will get used up, just like any fossil fuel. Maybe higher prices for coal & gas will force people to recognize that fact and finally make some strides in developing alternatives.

expatriate's picture
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I don't necessarily think we have to get slapped in the face to change. That seems a bit pessimistic to me. Nobody had to get slapped to develop the steam engine, automobile, or airplane.

What's the key to fixing dependence on oil? Capitalism. When someone sells an affordable electric car that outperforms a gasoline engine, gasoline will become a dinosaur and will the go the way of matchlock rifles and vacuum tubes.

Very rarely in history (other than war) have technological advances come about some crisis drove humanity to say "We've got to do something!" It's also been rare for those advances to come out of government or mainstream big business. Most of the time it started with an entrepreneur with an "outside the box" vision. Radical change came about when the breakthrough so revolutionized its area that people adopted it.

Give it time, and someone will do it. And I'll wager it won't be the auto manufacturers or oil companies. Years ago the Swiss turned down the idea of electronic watches that used a vibrating quartz crystal for timing -- so the Japanese picked it up and the rest is history. The next Bill Gates is the person who develops an engine that makes gasoline obsolete. By the time the mainstream realizes what they ignored, he/she'll be a gozillionaire.

And by the way, Stillhunter, I stressed the importance of remediation -- I'm agreeing with you on the "unchecked" part. I also didn't say you were telling people what they need. I said that I wouldn't do it. Just because I state an opinion doesn't mean it's a direct attack at you. I've seen a lot of people attack SUV owners with the most rabid venom, and I don't think it's justified. But stating that opinion doesn't mean I'm singling you out. Nor does a generalized statement equal an absolute. Trust me, if I address your position, I'll make it clear (i.e. "you said" etc). I don't like inferring when I can say it directly. So bottom line is that I think you're being a little thin skinned.

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Well, I have to say, my sister is a classic example. She is an ultra-lefty, tree-hugging, Republican-hating socialist. She thinks the government needs to "do something!" about our dependence on gasoline. She is one of the extremely vocal advocates of not allowing people to buy big, gas-guzzling SUVs... That is, people other than herself.

You see, she and her husband live way up in the mountains, so that he has a commute of 40+ miles each way each day. And, of course, to get through in bad weather they have to have a 4-wheel-drive. Their's is a 30-year-old, gas-guzzling, air-polluting, Toyota Land Cruiser.

Point out her hypocrisy, though, and she'll go into an indignant rant about how that's different. About how they actually NEED a vehicle like that, whereas all those flat-landers who own them really don't. Don't even TRY to point out to her that it was her CHOICE to move into the mountains!

There is no gas crisis. Gas is a commodity. Like every commodity, as it becomes more and more rare it will become more and more expensive. As it becomes more and more expensive, it will become more and more economically viable to spend money looking for alternatives. As more and more alternatives become available people will more and more turn to them. This is already happening.

This, in other words, is a "crisis" that will solve itself in time through the natural behavior of human beings, without any interference by government. All the hysteria seems to me to stem from people who would have us believe that one day we'll go and fill up our cars at the corner gas station and the next day, suddenly and without any warning, all the gas will be gone. It ain't gonna happen like that! Gas is slowly going to become less available, and therefore more expensive, over the course of decades at least and probably centuries. To think that it's all going to suddenly just disappear is DUMB!

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